Orlando's Outlook: Just say no

06-14-2017

Bottom LineThe early stages of the Trump administration have been chaotic, to say the least, with a circus-like atmosphere enveloping the Beltway. Between former FBI Director James Comey’s Congressional testimony last week, Robert Mueller’s ongoing special investigation into Russian influences and the president’s daily tweets, there’s not a lot of focus in Washington on implementing much-needed structural fiscal-policy reform.

To be sure, much of the damage to implementing the Trump agenda has been self-inflicted, as President Trump has burned precious political capital at a time when reaching consensus within his own majority party is like herding cats on a good day. The far-right Freedom Caucus and the moderate wing of the Republican Party are pointing in different directions on several key issues.

Across the aisle, meanwhile, Democrats have seized upon what they have identified as an opportunity to leverage this Republican dysfunction into a potentially winning political hand come the midterm elections in November 2018. It appears that the progressive and moderate wings of the Democratic party have collectively adopted a risky “just say no” strategy on all of President Trump’s legislative initiatives. These include lower personal and corporate tax rates, deregulation, repatriation, and more spending on infrastructure and defense, which are designed to boost economic growth, create more jobs and higher wages, and keep us safer against terrorism.

The potential losers, of course, are the American people, who thought they were voting last November for intelligent, well-meaning compromises in Washington to result in fiscally prudent but socially responsible legislation. The reality is that we may be looking at two more years of mind-numbing and soul-crushing political gridlock, unless the Republican somehow manage to play their ultimate trump card: actually passing some good legislation.

Several senior Democrats have openly tipped their hand regarding their party’s intended political strategy over the next 18 months:

Debbie Wasserman Schultz In January, the former head of the Democratic National Committee (DNC) spoke to a group of investors, which included us. She apologized for losing the November election, but she told us not to worry because she had devised a secret plan to successfully reclaim both the Senate and the House of Representatives in the mid-term elections in 2018. Her plan, she explained, was that Democrats in Congress were simply going to oppose everything Trump hoped to achieve legislatively. That would allow them to point out to voters that the Republicans—who ran the table in the 2016 election—got nothing done and didn’t deserve the trust of consolidated control in Washington.

Tom Perez The current chairman of the DNC delivered a speech on March 31 before the New Jersey Working Families Alliance, in which he said, “Donald Trump…we will resist.” According to the Wall Street Journal, he followed that up on May 1 with an e-mail message. “Yesterday, we marked Donald Trump’s hundredth day in office—and much more importantly 100 days of resistance.”

‘The New Party of No’ The New York Times devoted their Sunday magazine cover story on March 19 to chronicling how the Democratic party’s progressive base has transformed them into an opposition movement. While Senate minority leader Chuck Schumer (D-NY) said that he likes President Trump’s idea for a trillion dollars’ worth of infrastructure spending over the next decade, but not at the expense of budget cuts in health care, education, scientific research, the environment and labor protections, which are traditional Democratic priorities.

Hillary Clinton’s new PAC The former first lady, U.S. senator from New York, and U.S. secretary of state announced in May she was starting a political action organization called “Onward Together,” which would direct funding to groups that resist President Trump’s legislative priorities. Speaking at the Women for Women International conference in New York City, she explained she was “an active citizen and part of the resistance.”

The Senate’s Gorsuch Vote In April, the full U.S. Senate voted 54-45 to confirm Judge Neil Gorsuch as the 113th Supreme Court Justice, marking the first time in 14 months after the death of Justice Antonin Scalia that the Supreme Court of the United States (SCOTUS) was back at full strength with nine justices. But Senate majority leader Mitch McConnell (R-KY) could not persuade enough Democrats to end their filibuster and join the Republican majority to reach the required supermajority of 60 votes, so he invoked the so-called nuclear option, which required only a simple majority vote.

Justice Gorsuch, in our view, was an inspired candidate, with degrees from Columbia University, Harvard Law School and University College, Oxford, and with experience as a SCOTUS clerk, private attorney and deputy U.S. attorney. Prior to his appointment, he was on the U.S. Court of Appeals for the 10th Circuit in Denver for a decade. Moderately right of center, he was generally thought to be a brilliant jurist with impeccable credentials.

The Wall Street Journal reported at the time that 36 of the 48 Senate Democrats were so incensed with the way that Senate Republicans had treated President Obama and his SCOTUS nominee, Judge Merrick Garland, last year they planned to block Gorsuch as a matter of principle.

What about the next SCOTUS opening? Given that a SCOTUS appointment comes with lifetime tenure, and because the Senate has already gone nuclear, what happens if President Trump has another opening to fill in coming years? The Democrats’ strategic resistance in the Senate could end up hurting them in the long run, as President Trump could nominate more conservative judges in the future. There are three sitting justices who may soon retire:

Ruth Bader Ginsberg, 84 (liberal wing)

Anthony Kennedy, 81 (swing)

Stephen Breyer, 79 (liberal wing)

Demographics for the 2018 midterms Of the 33 Senate seats that are up for grabs in November 2018, only eight are held by Republicans now, and 25 are held by Democrats. So Democrats have many more Senate seats to defend. In addition, of those 25 seats, 10 of them are in states that Trump won—six of them by sizable margins—which means Republicans could potentially expand their Senate majority in the midterms. For that reason, we believe that Joe Manchin (D-WV), Heidi Heitkamp (D-ND) and Joe Donnelly (D-IN), who all come from solidly Republican states, voted to confirm Justice Gorsuch.

At present, in the 115th Congress, Republicans hold a sizable 45-seat majority in the House of Representatives (238-193), with four vacancies. Republicans have now been the majority party in the House since the midterm elections in 2010. Aside from their recent dominance, the Republicans’ current majority is their largest since the 1946 midterms (+58). So the Democrats have clearly set a very ambitious goal for themselves to successfully reverse the Republicans’ existing House majority in the next election.

Get something done The way to potentially thwart the Democrats’ strategy, of course, is for the Republicans in Congress to mend their differences and actually pass Trump’s structural fiscal-policy reforms into law. We expect that those reforms will begin to have the intended effect of boosting economic growth, employment and wages as the midterm elections loom in November. Many voters, businesses and investors recognize that lower tax rates, deregulation, repatriation, the immediate expensing of capital investments and more infrastructure and defense spending will strengthen the broader economy, resulting in rising corporate earnings and higher share prices. We believe that politicians who knowingly resist that positive trend do so at their own peril.